Neogen Corporation (NASDAQ:NEOG) reported adjusted earnings of 32 cents per share in the third quarter of fiscal 2018. The figure beat the Zacks Consensus Estimate by 33.3% and increased 60% from the year-ago quarter.
Revenues increased 8.5% on a year-over-year basis to $95.9 million, lagging the Zacks Consensus Estimate of $97 million.
Revenue Details
Food Safety Segment: Revenues at the segment totaled $47.6 million, up 10.9% on solid overall organic growth.
Neogen Corporation Price, Consensus and EPS Surprise
Neogen Corporation Price, Consensus and EPS Surprise | Neogen Corporation Quote
The company witnessed 14% rise in sales of Neogen's rapid diagnostics to detect food allergens, including gluten, milk, soy and peanuts. During the quarter, the company witnessed an 18% rise in sales of general sanitation products from the year-ago quarter. Sales of the foodborne pathogen detection tests increased 22%, including a 43% rise in sale of tests to detect Listeria. Also, sales of test kits to detect drug residues in milk rose 29% in the quarter.
Animal Safety Segment: The segment recorded revenues of $48.2 million, reflecting an increase of 6.2% from the year-ago quarter. Growth at the segment was mainly driven by increased sales of the genomics business, an 11% rise in rodent control product line, 26% uptick in sales of animal care products along with a 19% increase in sales of drug detection products and a 14% hike in sales of detectable needles.
The genomics business unit recorded a 25% increase on a year-over-year basis. Per management, growth was driven by the September 2017 acquisition of the Neogen Australasia genomics laboratory in Australia. The upside was also driven by an increase in revenues from genomic testing of beef and dairy cattle, swine, poultry, and companion animals at the other existing locations.
Margin Details
Adjusted gross margin expanded 120 basis points (bps) to 47.5% in the quarter, largely driven by cost improvement in the genomics service business and favorable product mix in its animal safety product lines.
Adjusted operating income was $15.9 million or 16.6% of sales in the third quarter, compared with $14.4 million or 16.2% a year ago.
Our Take
Neogen exited the third quarter on a solid note. We are encouraged by the year-over-year increase in earnings and revenues as well. We believe that Neogen is steadily progressing on the back of its four-pronged strategy. Also, we are encouraged by the accretive acquisitions and expanding international footprint which will drive overall results in fiscal 2018.
The market is looking forward to the company’s recent launch of BetaStar Advanced tests for beta-lactam and tetracycline antibiotics in milk.
Zacks Rank & Key Picks
Neogen carries a Zacks Rank #3 (Hold).
A few better-ranked stocks in the broader medical sector are Bio-Rad Laboratories (NYSE:BIO) , athenahealth, Inc. (NASDAQ:ATHN) and Varian Medical Systems, Inc. (NYSE:VAR) .
Bio-Rad Laboratories sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here. The company has a long-term expected earnings growth rate of 20%.
athenahealth is a Zacks #1 Ranked player. The company has a long-term expected earnings growth rate of 21.5%.
Varian Medical has a long-term expected earnings growth rate of 8%. The stock carries a Zacks Rank of 2.
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